When the construction and outsourcing firm Carillion hurtled headlong into insolvency in January, it was one of the biggest corporate collapses ever seen in Britain.
Almost 20,000 jobs in the UK and Ireland were put at risk, along with many thousands more in the Carillion supply chain. A raft of vital public services came under threat, from school meals to hospital cleaning and prison maintenance, major road and rail projects, and the already-delayed construction of two large new hospitals.
On Wednesday, MPs published their final report into the Carillion collapse. Running to 100 pages, it is a no-holds-barred account of the toxic combination of greed, arrogance, incompetence and aggressive accounting practices that combined to bring the business down.
There’s a real sense of anger running through the report, which MPs have moved extremely swiftly to produce, taking just four months to release their damning findings.
"Same old story. Same old greed," said Frank Field, chairman of the inquiry. "British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion."
Very few of those involved in the scandal escape censure, from the highly paid and “delusional” directors to the even more highly paid “cosy club” of auditors, the timid and ineffective regulators – and the government.
Harshest words
The harshest words are reserved for the Carillion board, which presided over a “rotten corporate culture” and, despite their clear accountability, presented themselves in Parliament when called to give evidence “as self-pitying victims of a maelstrom of coincidental and unforeseeable mishaps”.
Drawn up jointly by MPs from the Work and Pensions and Business committees, the report is one of the most strongly worded ever produced by MPs.
As Carillion slithered ever closer to the brink, the board elected to increase dividends every year and, even as the business very publicly began to unravel, they were more concerned with protecting – and increasing – their generous executive bonuses.
Obligations such as adequate funding for the pension scheme were, MPs say, “treated with contempt”.
Not surprisingly, Carillion directors, who were allowed sight of the report on Monday, have a different take on events. Former finance director Richard Adam – described in the report as "the architect" of the firm's highly aggressive accounting policies – says he disputes various quotes attributed to him. In particular, he denies ever describing contributions to the hugely under-funded Carillion pension scheme as "a waste of money", saying instead that this was an assertion made by one of the fund's trustees.
The leadership of Richard Howson, chief executive from 2012 until 2017 (by which time Carillion's fate was sealed), is described as "misguidedly self-assured" while chairman Philip Green is dismissed as "an unquestioning optimist", whose role instead should have been to challenge.
Big Four
The report is brutal in its assessment of the “Big Four” auditing firms – KPMG, PwC, EY and Deloitte – which together received more than £70 million in fees from the firm over a 10-year period. They were “a cosy club incapable of providing the degree of independent challenge needed”, MPs said.
There’s an equally damning assessment of the regulators – the accounting watchdog and the pensions regulator – which the report says were “united in their feebleness and timidity”. The verdict on their shockingly inadequate performance is brutal: “We have no confidence in our regulators.”
As for the government, which continued to award contracts to Carillion even as it headed for disaster, the report notes that the drive to cut costs via outsourcing made such a collapse virtually inevitable. Measures taken to improve the business environment, such as the code for prompt payment of suppliers, have proved “wholly ineffective”.
The report has some heavyweight recommendations, key among which is that the audit market be referred to the competition authorities with a view to a break-up of the Big Four.
On the former Carillion board, it says careful consideration should be given to whether they breached their duties under the Companies Act and whether they should be disqualified from ever serving as directors.
Unite, which represents more than 1,000 workers affected by Carillion’s collapse, is demanding that the recommendations are adopted in full. The union, Britain’s biggest, wants an end to government outsourcing of public services and is calling for existing contracts to be brought back in-house, “where profit is no longer the ideological master”.
As the report says, the collapse of what was the country’s second-largest construction group is a tale of “recklessness, hubris and greed”. And the stark warning from MPs today is that if the lessons of Carillion are not heeded, it could happen again – and soon.
Fiona Walsh is business editor of theguardian.com
